Full year results for the year ended 31 March 2021 30 July 2021 Disclaimer
This document has been prepared by Babcock International Group PLC past trends or activities should not be taken as a representation that such (the “Company”) solely for use at a presentation in connection with the trends or activities will continue in the future. They speak only as at the Company's full year results announcement for the twelve months ended 31 date of this Presentation and the Company undertakes no obligation to March 2021. For the purposes of this notice, the presentation that follows update these forward-looking statements. (the “Presentation”) shall mean and include the slides that follow, the oral presentation of the slides by the Company, the question and answer The information and opinions contained in this Presentation do not purport session that follows that oral presentation, hard copies of this document to be comprehensive, are provided as at the date of the Presentation and and any materials distributed at, or in connection with, that presentation. are subject to change without notice. The Company is not under any obligation to update or keep current the information contained herein. The Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue, or the solicitation of an offer to buy or acquire, securities of the Company in any jurisdiction or an inducement to enter into investment activity. No part of this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever.
Statements in this Presentation, including those regarding the possible or assumed future or other performance of the Company or its industry or other trend projections, as well as statements about Babcock’s or management’s beliefs or expectations, may constitute forward-looking statements. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond Babcock’s control. These risks, uncertainties and factors may cause actual results, performance or developments to differ materially from those expressed or implied by such forward-looking statements. Accordingly, no assurance is given that such forward-looking statements will prove to have been correct. Forward looking statements in the Presentation regarding What we will cover
Introduction
Financials and the new baseline
The improvements we are making
Our strategy and future
3 Introduction
Changes in Life since our Opportunities numbers since April update ahead April
4 We have completed deep reviews of the Group
1 2 3 4 5 6
Operating Contract Balance People and Strategy Portfolio model profitability sheet ESG strategy
5 Financial review David Mellors CFO Changes in the presentation of underlying results
Treatment of JVs and associates: • Single line in income statement (not in underlying operating profit) • Aligns with IFRS
IFRIC 12 investment income: • Taken out of underlying operating profit
Three column P&L: • Underlying results • Defined ‘Specific Adjusting Items’ • Statutory results
Cash flow presentation: • Lease cash flows (‘capital element’ split out in operating cash flow) • New lease commitments = change in debt below free cash flow • ‘Exceptional cash flows’ no longer excluded from free cash flow
7 Contract profitability and balance sheet review (CPBS)
Scope: • Work targeted by assessment of risk Accounting policy − >100 contracts (c.£2.7bn revenue) Estimates1 Errors change c.£1.8bn c.£170m − Balance sheet items reviewed on risk basis c.£60m Adjustments required (c.140) = £2bn • Prior year restatements from: Total CPBS adjustments − Correction of prior year errors c.£2bn − Accounting policy change − Cumulative restatement at Mar 19 = £308.1m − Cumulative restatement at Mar 20 = £230.7m FY21 Underlying FY21 impact from FY21 Specific Prior years • FY21 changes of £1,813.7m Operating Profit2 JVs and Tax Adjusting Items3 restatement3 £274.7m £15.3m £1,523.7m £230.7m • Underlying operating profit impact £274.7m − £250.0m one-off − £24.7m recurring FY21 CPBS FY21 CPBS • JV & associate impact £37.1m one-offs recurring £250.0m £24.7m − £31.5m one-off − £5.6m recurring
8 1. Includes annual goodwill impairment test 2. Total FY21 loss after tax impacts from CPBS restatements was £290m. A detailed breakdown of the CPBS restatements on the income statement is shown in appendix slide 41 3. Shows loss after tax adjustments FY20 underlying income statement restatement
Presentation changes FY20 Change to CPBS FY20 • Presentation changes: previous Change to JV IFRIC 12 restatements Restated reported accounting presentation − JVs & associates and tax* − IFRIC 12 income Underlying revenue 4,871.7 (422.2) - (21.0) 4,428.5 • CPBS restatements: Underlying operating profit 524.2 (105.7) (1.1) (39.8) 377.6 − Correction of prior year errors Share of results from joint ventures - 58.6 58.6 and associates − Accounting policy change
Net finance costs (95.8) 22.8 1.1 - (71.9)
Underlying profit before tax 428.4 (24.3) - (39.8) 364.3
Tax (77.1) 17.9 1.2 (9.4) (67.4)
Underlying profit after tax 351.3 (6.4) 1.2 (49.2) 296.9
Underlying basic EPS 69.1p 58.4p
9 1. includes £1.2 million deferred tax movement as a result of changes in statutory tax rates FY20 restatement underlying cash flow: (1/2)
£m FY20 Prior year Presentation FY20 previously restatements changes restated reported • Presentation changes: Operating profit (excl. JVs) 417.4 (39.8) - 377.6 − Capital elements of lease payments - Depreciation & amortisation 95.7 (4.7) 91.0 within operating cash flow ROU asset depreciation 129.4 - 123.3 (6.1) − New lease commitments now a Non-cash items 5.4 (2.9) (1.1) 1.4 ‘change in debt’ not in operating cash Working capital (26.8) 16.0 - (10.8) flow - Provisions (19.4) 9.4 (10.0) Net capital expenditure (147.5) - (108.5) − Cash flow from exceptional items 39.0 included in free cash flow IFRS 16 new lease commitments (109.8) - 109.8 - Capital element of lease payments - - (175.0) (175.0) Operating cash flow 344.4 10.9 (66.3) 289.0 Cash conversion % 83% - - 77% Retirement benefits in excess of income statement (70.2) - - (70.2) Interest paid (71.4) - 1.1 (70.3) Tax paid (62.6) - - (62.6) Dividends from joint ventures 52.0 - - 52.0 Exceptional items - - (82.4) (82.4) Free cash flow 192.2 10.9 (147.6) 55.5
10 FY20 restatement underlying cash flow: (2/2)
£m FY20 Prior year Presentation FY20 previously restatements changes restated reported • CPBS restatements: Free cash flow 192.2 10.9 (147.6) 55.5 − Supply chain financing now included Acquisitions and disposals net of cash acquired (0.8) - 105.5 104.7 in debt (£93.2m at Mar 20, £113.5m Exceptional cash flow 23.1 - (23.1) - at 1 April 2019) Capital element of lease payments - - 175.0 175.0 IFRS 16 additions - (7.3) (109.8) (117.1) − £16.7m of lease liabilities previously not included Investments in joint ventures (0.3) - - (0.3) Own shares (2.9) - - (2.9) • Presentational changes: Dividends paid (153.9) - - (153.9) Net cash outflow 57.4 3.6 - 61.0 − Acquisitions and disposals separated from exceptional items (now in free Opening net debt (957.7) - - - cash flow) Supply chain financing - opening adjustment - (113.5) - - Opening net debt (restated) - - (1,071.2) − Lease commitments/capital element IFRS 16 transition (640.8) - - (640.8) of leases as per previous slide Exchange movements (53.8) - - (53.8) Movement in net debt 57.4 3.6 - 61.0 Closing net debt (1,594.9) (109.9) - (1,704.8)
11 Financial results overview
FY20 FY21 restated4 • Organic revenue down 3%
Revenue £4,183m £4,429m − COVID-19 impacts Underlying operating profit1 £(27.6)m £377.6m − CPBS Underlying operating profit excluding one-off CPBS £222.4m − Other trading growth Underlying operating profit margin excluding one-off CPBS 5.3% 8.5% • Underlying operating profit (excluding FX and Share of results from JV and associates2 £(13.1)m £58.6m disposals) was down 40% Share of results from JV and associates excl. one-off CPBS £18.4m − Reflecting the impact of COVID-19, CPBS Underlying basic EPS (23.8)p 58.4p and significant (profit) credit items in FY20 Underlying basic EPS excluding one-off CPBS adjustments 28.9p • Underlying free cash flow benefited from VAT Operating cash flow £299.1m £289.0m timing benefit inflow (£56m) and Q4 corporation Free cash flow £169.5m £55.5m tax repayments inflow (£67m) Net debt including lease obligations £1,354m £1,705m • Net debt at 31 March 2021 (excluding operating Net debt excluding operating leases £772m £1,055m leases) of £772m, down from £1,055m last year Net debt/EBITDA (covenant basis)3 2.5x 2.3x
12 1. Underlying operating profit includes £274.7m of items relating the CPBS, of which £250.0m are one-off 2. CPBS review items reduced the share of results from joint ventures and associates by £37.1m in FY21, of which £31.5 million is one-off in nature 3. See slide 42 for calculation of net debt / EBITDA under our covenant basis 4. See restatement on slides 9 to 11 Revenue bridge
(£m)
4,429
( 42 ) 4,183 ( 59 ) 208 ( 145 ) ( 207 )
Organic decline (3%)
FY20 FX Disposals COVID-19 FY21 Other FY21 Restated (estimate) CPBS impacts trading
13 Underlying operating profit bridge
8.5% margin
(£m) 378
(5) (4)
(47) 5.3% margin (46) (25) 222 (29)
FY20 restated FX Disposals Significant credits in COVID-19 Recurring CPBS Other FY21 FY20 (estimate) impact* trading (excl. one-off CPBS impacts)
14 * Recurring CPBS impact of £24.7m included in the £222.4m FY21 underlying operating profit excluding one-off CPBS Marine
Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS)
Contract backlog (£bn) 2.6 2.5
Revenue (£m) 1,164 (3) (25) - 9 (26) 124 1,242
Underlying operating profit (£m)1 134 - (3) (6) (17) (8) (15) 85
Underlying margin 11.6% 6.9%
Revenue: Operating profit: • Organic revenue +9% • Large impact from COVID-19: impact on high margin • Driven by Type 31 ramp up and LGE business growth consultancy business, Oman shutdown, additional costs • c.£250m of low or zero margin programme revenue in • Recurring CPBS impact: more cautious view on programme FY21 profit recognition including Type 31 programme • Other trading: less favourable allocation of corporate costs, lower profitability on some programmes and legal case lost
15 1. FY21 underlying operating profit, including £(29)m of one-off CPBS adjustments, was £56m 2. See restatement on slide 9 Nuclear
Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS)
Contract backlog (£bn) 0.6 0.4
Revenue (£m) 897 - (4) - 9 (22) 95 976
Underlying operating profit (£m)1 113 - 1 (21) (2) - (3) 87
Underlying margin 12.6% 8.9%
Revenue: Operating profit: • Organic revenue +9% • Significant credits in FY20: higher R&D tax credits • Increased work on submarine support and ramp up of • Lower margin earned this year on certain defence infrastructure work programmes − E.g. MSDF Interim Arrangement
16 1. FY21 underlying operating profit, including £(23)m of one-off CPBS adjustments, was £64m 2. See restatement on slide 9 Land
Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS)
Contract backlog (£bn) 3.5 3.0
Revenue (£m) 1,523 (51) (31) - (119) (141) (72) 1,110
Underlying operating profit (£m)1 98 (5) (2) (3) (15) (10) (12) 52
Underlying margin 6.4% 4.7%
Revenue: Operating profit: • Organic revenue down 22% • Large impact from COVID-19: lower activity and site closures • COVID-19 impact: across many parts of the sector, especially in civil training, education, airports and in South Africa South Africa and civil training and airports contracts • Recurring CPBS impact: reduced programme profitability, • CPBS impacts: reduced revenue on DSG and de-recognition particularly DSG of Phoenix pass-through revenue • Other trading: Loss of Heathrow contract, lower defence • c.£200m of pass-through revenue in FY21 (zero margin) volumes and increased costs • c.£150m of low or zero margin programme revenue
17 1. FY21 underlying operating profit, including £(69)m of one-off CPBS adjustments, was £(17)m 2. See restatement on slide 9 Aviation
Significant CPBS FY21 FY20 COVID-19 Other FX Disposals credits in recurring (excl. one-off restated2 (estimate) trading FY20 items CPBS)
Contract backlog (£bn) 2.8 2.9
Revenue (£m) 846 12 - - (45) (19) 61 854
Underlying operating profit (£m)1 32 (0) - (17) (11) (6) 1 (2)
Underlying margin 3.8% (0.2)%
Revenue: Operating profit: • Organic revenue flat • Significant credits in FY20: include multi-year indexation • Growth from new contracts offset COVID-19 impacts claims on contracts and, accruals and provision releases from lower flying hours in the earlier stages of the • Large impact from COVID-19: lower activity and additional pandemic costs
18 1. FY21 underlying operating profit, including £(128)m of one-off CPBS adjustments, was £(130)m 2. See restatement on slide 9 Cash flow and movement in net debt: (1/2)
£m FY21 FY20 restated1 • FY21 comments:
Underlying operating profit excl. one-off CPBS adj. 222.4 377.6 − High capex due to Type 31 and facility/IT upgrade and much lower disposals of Depreciation & amortisation (incl. ROU assets) 247.9 214.3 aircraft (via sale and leaseback Net capital expenditure (171.1) (108.5) transactions) Capital element of lease payments (140.6) (175.0) − Working capital benefit from advance Working capital movements 128.0 (10.8) receipts and £56m VAT timing benefit
Other 12.5 (8.6) − Corporate tax receipt in Q4 = £67m Operating cash flow (underlying) 299.1 289.0 • FY22 guidance: Cash conversion % 134% 77% − Similar capex Retirement benefits in excess of income statement (73.5) (70.2) − Pensions in excess of income statement Interest paid (66.6) (70.3) c.£130m outflow
Tax paid 18.4 (62.6) − Tax c.£30m outflow
Dividends from joint ventures 36.8 52.0 − VAT reversal through working capital
Exceptional items (44.7) (82.4) − Dividends from JVs c.£30m
Free cash flow 169.5 55.5 − Exceptional outflows c.£70m
19 1. See restatement on slide 10 Cash flow and movement in net debt: (2/2)
£m FY21 FY20 restated1 • FY21 comments:
Free cash flow 169.5 55.5 − Disposals include: Acquisitions and disposals (incl. JVs) 81.8 104.4 − Holdfast £85m net proceeds Dividends (0.8) (153.9) − Conbras £7m net proceeds Leases – capital element add back 140.6 175.0 • FY22 guidance: – new commitments (82.3) (117.1) − £400m disposals within next 12 months FX 44.6 (53.8)
Own shares (2.2) (2.9) − No dividend for FY22
IFRS 16 transition - (640.8) − Priority to reduce gearing ratio below 2x Movement in net debt 351.2 (633.6)
Opening net debt (1,704.8) (1,071.2)
Closing net debt (1,353.6) (1,704.8)
Net debt excl. operating leases (771.5) (1,055.4)
Gearing ratio (covenant basis) 2.5x 2.3x
20 1. See restatement on slide 11 Significant gap between average and year end net debt
Net debt excluding operating leases (£m) Gap between average and closing net debt in Average Net Debt FY21: Period end Net Debt 1,556 • £67m Corp Tax receipts (March) 1,445 • c.£60m reduction in supply chain finance 1,302 • c.£30m FX 1,071 1,055 • c.£370m working capital
772 − c.£50m permanent decreases − c.£320m1 of ‘period end timing’
− c.£200-250m will reverse over next 2-3 years
• Q1’22 (June 2021) net debt (excl. operating leases) of £1,140m FY19 FY20 FY21
21 1. NB: VAT £56m timing difference does not cause a gap on this slide as it has been a debt since June 2020 Liquidity and debt maturity profile
Debt maturity profile1 (£m) • Liquidity headroom of £1.2bn at 31 March 2021 Net debt2 at 31 March 2021 £772m • £2.4bn of total available borrowing and facilities at Euro bond 20223 €550m July 2021 FY21 average net debt2 RCF 2024 £300m £1,302m 2,500 RCF 2025 £775m • New £300m RCF signed in May 2021: GBP bond 2026 £300m − RCF covenant gearing ratio 4.5x until 31 Mar 2022
4 2,000 Euro bond 2027 €550m • Expect minimum of £400m of disposals in next 12 months
1,500
1,000 Ample liquidity and covenant headroom to prudently protect downside
500
0 31/03/21 31/03/22 31/03/23 31/03/24 31/03/25 31/03/26 31/03/27
22 1. Chart shows notional value of the debt 2. Net debt shown excluding operating leases 3. Euro bond 2022 €550m hedged at £482m 4. Euro bond 2027 €550m hedged at £493m Key messages
• Detailed reviews completed • Financial baseline understood • Simplified reporting and increased transparency • Ample liquidity and covenant headroom • Actions in train to save £40m p.a. • Disposals in process to raise min £400m • Plan to strengthen the balance sheet without recourse to shareholders (<2x gearing)
23 Outlook
• While FY22 will benefit from operating model savings (c.£20 million), it will be a year of transition and, as such, we remain cautious
• The impact of COVID-19 on performance in FY22 is uncertain. While activity levels have broadly recovered, the additional costs from operating in a COVID-secure way remain. These costs, combined with the uncertainty over business interruption from increased cases and potential new variants, mean that we do not currently expect a material boost in profitability from COVID-19 restrictions easing
• Free cash flow will be impacted by the material cash outflows previously communicated, particularly additional pension contributions (c.£130 million in excess of the income statement) and exceptional cash costs (c.£50 million restructuring and c.£20 million Italy fine). In addition, we are still investing in facility and IT upgrades and we will be unwinding over time the historical management of working capital around period ends. As such, free cash flow (before disposal proceeds) in FY22 is expected to be significantly negative
• We are confident about our prospects for the markets we serve. We believe that with our improved strategic focus and operational delivery, and with efficiencies generated by the new operating model, we can significantly improve the Group’s profitability, and most importantly its cash generation, over the medium term but this will take time to deliver
24 The improvements we are making David Lockwood CEO Our new approach following our reviews
What the world Avincis expectations UK civil nuclear Evolving needs in the Customers demand more looks like now: did not play out opportunity smaller defence world
Created a new baseline
How are we Building a strong Rolling out new people Refreshed strategy Aligning our portfolio New operating model responding: balance sheet and ESG strategy
Improved Which will A better place to Improved quality An appropriate delivery for our Meeting budgets Return to growth work of earnings balance sheet lead to: customers
26 A new management team and governance
Management team Improving governance
• Neal Misell – Chief Executive, Aviation • Clear ‘tone from the top’ • Jack Borrett – Group Company Secretary • Regular drumbeat of performance reviews Appointments since September 2020: • Improved risk management process • David Mellors – Chief Financial Officer • Standardised internal financial reporting • Will Erith - Chief Executive, Marine • Improved financial controls • Dominic Kieran – Chief Executive, Nuclear (from Sept 2021) • Improved, standardised bid review process • Tom Newman – Chief Executive, Land • New Group-wide approach to project management • Nikki Fox – Chief Human Resources Officer and project reviews • John Howie – Chief Corporate Affairs Officer
• Jon Hall – Chief Innovation and Technology Officer
• Collette McMullen – Chief of Staff
27 A new operating model and culture
New operating model Developing a new culture
• More efficient and effective business • A unifying company culture • Simpler and flatter structure: from a maximum of 14 • More collaboration across sectors management layers in some parts of the business reduced to a maximum of 7 layers • Increased business flexibility and responsiveness • Remove duplication, especially in support functions • Empowering our people through the flatter structure • The majority of the proposed 1,000 headcount reduction will be completed by the end of September: • ESG a focus across the business we are on target with most of our consultations
Realisable annual operating savings of approx. £40m
28 Our new people and ESG strategy
People strategy ESG strategy
• More collaboration, less complexity • Net zero by 2040 A video on our people • New purpose and culture • Sustainability to be part of programme strategy • Creating an agile and inclusive design workplace • Providing high quality jobs and making • Improving diversity a positive contribution to our • New approach to talent, learning and communities performance • Collaborative, trusted partner across • Harmonising policies and processes the supply chain • Ensuring the safety and wellbeing of all our people
29 Our strategy and future Our evolution
Marine Nuclear Land Aviation
UK naval business UK value add services International Strategic actions • Own key assets • Technical expertise in • Strong niche positions critical and complex Align our portfolio • Deep technical expertise assets • Highly competitive platforms, systems and • Technical expertise in products Implement our new operating model Strengths civil nuclear
• Increase in defence • UK Land Industrial • 1st generation outsourcing Roll out our new people strategy budget Strategy • Equipment and systems • Shipbuilding • National resilience and growth Develop our ESG strategy emergency response • Infrastructure • Potential for Type 31 exports • Long term Explore growth opportunities Growth drivers Growth • Submarine support opportunities in civil • Strong military Aviation nuclear pipeline
31 Progress since April and looking ahead
Canada: VISSC extended
UK: Defence tactical comms Ukraine: Memorandum of implementation with UK MOD and Ukraine
France: Expanded defence aviation training, new c.€500m contract
Australasia T31 export opportunities Expanding our high frequency comms capability and capacity
32 Key messages
Now have the appropriate financial baseline
Turnaround plan to restore Babcock to strength without the need for new equity
- Improvements to strengthen the Group including our new operating model
- Portfolio alignment to generate at least £400m and strengthen our balance sheet
Exploring range of medium term opportunities
Aim to significantly improve profitability and cash generation over the medium term
33 Q&A David Mellors Appendix David Mellors FY21 results split by sector
Underlying operating profit excl. Revenue one-off CPBS adjustments Contract backlog
20% 23% 28% 30% 33% 38% £4.2bn £222m £8.7bn 4% 27%
23% 39% 35%
Marine Nuclear Land Aviation
36 FY21 results split by market
Revenue Contract backlog
44% 45% £4.2bn £8.7bn 56% 55%
Defence Non-defence
37 FY21 sector revenue splits
Marine Nuclear Land Aviation
16% 17% 22%
39% £1.2bn £1.0bn £1.1bn £0.9bn 61%
78% 84% 83%
Defence Non-defence
38 Statutory to underlying reconciliation
(£m) FY21 FY20 restated Specific Specific Underlying Adjusting Items Statutory Underlying Adjusting Items Statutory
Revenue 4,182.7 – 4,182.7 4,428.5 – 4,428.5
Operating (loss)/profit (27.6) (1,615.4) (1,643.0) 377.6 (453.2) (75.6)
Share of results of joint ventures and associates (13.1) – (13.1) 58.6 – 58.6
Investment income 0.9 – 0.9 1.1 – 1.1
Net finance costs (62.1) – (62.1) (73.0) – (73.0)
(Loss)/profit before tax (101.9) (1,615.4) (1,717.3) 364.3 (453.2) (88.9)
Income tax benefit/(expense) (18.4) 33.7 15.3 (67.4) 40.5 (26.9)
(Loss)/profit after tax for the year (120.3) (1,581.7) (1,702.0) 296.9 (412.7) (115.8)
Basic EPS (23.8)p (337.0)p 58.4p (23.3)p
Diluted EPS (23.8)p (337.0)p 58.3p (23.3)p
39 Note: FY21 underlying operating profit excluding one-off CPBS adjustments was £222.4m FY21 underlying EPS calculation excl. one-off CPBS
Underlying (excl. one-off CPBS)
Underlying operating (loss)/profit 222.4
Investment income 0.9
Finance costs (62.1)
Underlying PBT (excl. JVs) 161.2
Income tax based on an underlying ETR @ 21% (33.9)
Share of JV and associates (net of tax) 18.4
Non controlling interests -
Net Income 145.7
Weighted average number of shares 505.0
EPS basic 28.9
40 CPBS impacts on income statement
£m FY21 FY20
Specific adjusting Specific adjusting Underlying Statutory Underlying Statutory items items
Operating profit (274.7)1 (1,540.8) (1,815.5) (39.8) 129.1 89.3
JVs & associates (37.1)2 - (37.1) - - -
PBT (311.8) (1,540.8) (1,852.6) (39.8) 129.1 89.3
Tax adjustments (7.5) - (7.5) (12.4) - (12.4)
Tax effect 29.3 17.1 46.4 3.0 (2.5) 0.5
Loss after tax impacts (290.0) (1,523.7) (1,813.7) (49.2) 126.6 77.4
Prior year restatements (230.7) (308.1)
Total CPBS (2,044.4) (230.7)
41 1. Underlying operating profit one-off CPBS adjustments = £250.0m, recurring CPBS adjustments = £24.7m 2. JVs & associates one-off CPBS adjustments = £31.5m, recurring CPBS adjustments = £5.6m Net debt / EBITDA (covenant basis)
FY20 (£m) FY21 restated
Underlying operating profit excl. one-off CPBS adjustments 222 378
Depreciation and amortisation 108 91
Other covenant adjustments (12) (17)
EBITDA 319 452
JV and associate dividends 37 52
EBITDA + JV and associate dividends 355 504
Net debt (772) (1,055)
Covenant adjustments (adding back finance lease receivables, loans to JVs, avg FX) (104) (95)
Net debt (covenant basis) (875) (1,150)
Net debt / EBITDA 2.5x 2.3x
42 Joint ventures: summary
Babcock underlying JVs Share Country Sector Start End
Asset JVs Ascent 50% UK Aviation 2016 2033 • Typically assets and debt • Dividends follow after paying down JV debt
AirTanker 15% UK Aviation 2008 2035 • Typically long-term Asset JVs Asset
Bernhard Schulte 50% Germany Marine 2017 2027
Operational JVs Naval Ship Management Australia 50% Australia Marine 2018 2024 • Capability partnerships • No debt • Dividends follow profits, subject
AirTanker Services 22% UK Aviation 2008 2035 to short-term phasing Operational JVs Operational
43 Pensions
Technical provisions position IAS 19 position March 2021: c.£300m deficit (£m) FY21 FY20 March 2020: c.£500m deficit Assets 4,785 4,411 Obligations (5,078) (4,266) Net surplus / (deficit) (293) 145
Why different to IAS 19 Why the actuarial deficit Key assumptions FY21 FY20 position: has decreased in FY21:
Discount rate 2.0% 2.4% • RPI reform changes not yet fully • Gilt yield rates have fallen allowed for in funding valuations • Hedging has mitigated the Inflation (RPI) 3.2% 2.6% • Lower corporate bond yields impact impact of increase in inflation IAS 19 position expectations
Cash payments: Movement in IAS 19 net position due to: • Reduction in corporate bond yields • Pension contributions in excess of income statement: £74m in FY20, around £130m expected in FY22 • Higher inflation assumptions • Normal additional payments included in underlying free cash flow
44 Key contracts: Marine
Contract Customer Start End Country Notes
Type 31 UK MOD 2019 2028 UK Design, build and assembly of five general purpose frigates for the Royal Navy
Maritime Support Delivery Ship through-life management and support delivery for the Royal Navy UK MOD 2014 2021 UK Framework (MSDF) Will be replaced by the Future Maritime Support Programme (FMSP)
Victoria In Service Support Contract RCN 2008 2023 Can Victoria In Service Support Contract to sustain Royal Canadian Navy’s submarine programme (VISSC)
Marine Systems Support Partner UK MOD 2017 2024 UK Technical Authority and equipment support package for QEC aircraft carriers and T45 classes (MSSP)
A suite of contracts to design and manufacture weapons handling launch systems and signal ejectors Dreadnought systems UK MOD 2006 2031 UK for the UK’s Dreadnought Class submarine build programme
NZ dockyard management RNZN 2015 2022 NZ Management of Devonport Dockyard in Auckland and sustainment of Royal New Zealand Navy fleet
General Manufacturing tube assemblies for the joint UK US submarine programme to be used in the common UK/US CMC tube assemblies 2014 2026 UK/US Dynamic missile compartments (CMC) for Dreadnought and Columbia Class submarines
Operate high-tech equipment to transmit and receive messages for UK and NATO forces around the Defence High Frequency Comms UK MOD 2003 2021 UK globe
Support contract for the Royal Australian Navy’s two largest warships, the Canberra Class Landing Canberra Class support (NSM JV) RAN 2019 2025 Aus Helicopter Docks (LHDs) five-year contract with two five-year options (through our NSM JV)
Warship Asset Management RAN 2018 2024 Aus Sustainment of the Royal Australian Navy’s ANZAC class frigates (through our NSM JV) Agreement (WAMA) (NSM JV)
45 Key contracts: Nuclear
Contract Customer Start End Country Notes
Nuclear submarine, infrastructure and license site elements of MSDF MSDF UK MOD 2014 2021 UK Will be replaced by the Future Maritime Support Programme (FMSP)
Programme management and design phase activity for the upgrade works to Devonport Dockyard’s 10 Dock Assessment Phase UK MOD 2019 2021 UK 10 Dock to enable future deep maintenance for Astute Class submarines
Future Submarine Design UK MOD 2012 2023 UK Contract to deliver design support services for the future Dreadnought Class submarine fleet Phase Services Contract
EDF Energy Lifetime Framework agreement providing fuel route and other services to advanced gas cooled reactors until EDF 2015 2030 UK Enterprise Agreement the last of seven reactors ceases power generation in 2028
Hinkley Point C – MEH JV alliance to deliver mechanical, electrical, heating, ventilation and air conditioning at Hinkley EDF 2019 2028 UK Alliance Point C
Sellafield Glove boxes Sellafield 2017 2027 UK Glove box systems to process nuclear material
46 Key contracts: Land
Contract Customer Start End Country Notes
Maintenance, repair and overhaul to over 35,000 vehicles of the British Army’s A and B DSG - Defence Support Group UK MOD 2015 2025 UK vehicle fleets. Option for five, one-year extensions
Fleet management services for the MOD’s c.15,000 vehicle white fleet, including Phoenix II – White fleet UK MOD 2016 2022 UK procurement of vehicles and services
RSME - Royal School of Holdfast 2008 2038 UK Provision of training and associated support services for the UK MOD Mechanical Engineers
Network Control Period 6&7 2019 2029 UK Track and rail systems projects in Scotland through an Alliance with Network Rail Rail
National Supporting new build, reconductoring, refurbishment, decommissioning and dismantling work National Grid 2021 2026 UK Grid for the high voltage overhead line network in England and Wales
Maintenance and engineering support for the national power generator, Eskom, on their Eskom power support Eskom 2011 2021 South Africa existing and new-build power stations with option to extend to 2022 London Metropolitan Police Service (MPS) fleet MPS 2006 2022 UK Managing and overseeing the repair and maintenance for the fleet, and specialist equipment management London Metropolitan Police Policing Education Qualifications Framework (PEQF) providing initial training to police MPS 2020 2028 UK Service (MPS) training recruits
London Fire Brigade (LFB) fleet Technical fleet management of over 400 LFB vehicles and around 45,000 LFB 2014 2035 UK management pieces of firefighting equipment
London Fire Brigade (LFB) Delivering over 200 training programmes to c.5,000 firefighters from two LFB 2012 2037 UK training state of the art facilities, 97,000 delegate days of training per annum
47 Key contracts: Aviation
Contract Customer Start End Country Notes Helicopter Emergency Medical Services (HEMS) contract with six specially configured AW139 Victoria Air Ambulance Victoria Gov 2016 2026 Australia aircraft Spanish Spanish coastguard search and rescue contract, 14 aircraft, 13 bases. Option to extend by Salvamento Sasemar 2018 2022 Spain Coastguard further two years Operation and maintenance of 19 Government owned CL-415 Canadair aircraft. Option to Italy Firefighting Ministry of Interior 2018 2022 Italy extend by further four years Provision of engineering services and technical aviation support to 17 air stations across the Hades air base support UK MOD 2018 2023 UK UK Delivering engine maintenance and technical support for 54 Hawk T1 jets supporting the Hawk T1&T2 BAE Systems 2004 2022 UK RAF’s advanced jet training programme, T1 to be taken out of service but potential for a follow on T2 contract for a minimum of four years Providing six H160 helicopters, technical modifications and through-life support for the French H160 French Navy SAR French DOD 2021 2032 France Navy search and rescue operations Provision of 91 aircraft, instructors and services to deliver RAF air squadrons up to 35,000 Light Aircraft Flying Task II UK MOD 2009 2022 UK flying training hours across 14 sites, discussions ongoing for a five-year extension with up to (LAFT) three additional years Manitoba state Firefighting in Manitoba operated with Babcock surveillance aircraft and customer owned Manitoba - Firefighting 2018 2028 Canada Government Canadair water bombers. Option to extend by further three years
FOMEDEC French DOD 2017 2028 France Provision of aircraft, training support and maintenance to the French Air Force
Provision of aircraft, training support and maintenance to the French Air Force contract Mentor French DOD 2021 2027 France includes five one-year options for extension UK Military Flying Training UK MOD 2008 2033 UK Ascent 50/50 JV with Lockheed Martin - rotary and fixed-wing flight training System (UKMFTS) (Ascent JV) Future Strategic Tanker Aircraft JV with Thales, Rolls-Royce and Airbus. Infrastructure that supports air-to-air refueling and UK MOD 2008 2035 UK (FSTA) (AirTanker JV) air-transport operations
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